Corporate Accounting (BBAC401)

Assignment (Group of Two) (Total Marks 25) Due Date: Session 5.2

Problem # 1 (Marks 17)

ABC Trading operates in a very competitive field. To maintain its market position, it purchased two new machines for cash on 1 January 2012. It had previously rented its machines. Machine A cost $40,000 and Machine B cost $100,000. Each machine was expected to have a useful life of 10 years, and residual values were estimated at $2000 for Machine A and $5000 for Machine B.On 30 June 2013, ABC Trading adopted the revaluation model to account for the class of machinery. The fair values of Machine A and Machine B were determined to be $32 000 and $90 000 respectively on that date. The useful life and residual value of Machine A were reassessed to 8 years and $1500. The useful life and residual value of Machine B were reassessed to 8 years and $4000.On 1st January 2014, extensive repairs were carried out on Machine B for $66,000 cash. ABC Trading expected these repairs to extend Machine Bs useful life by 3.5 years and it revised Machine Bs estimated residual value to $9,450.Owing to technological advances, ABC Trading decided to replace Machine A. It traded in Machine A on 31st March 2014 for new Machine C, which cost $64,000. A $28,000 trade-in was allowed for Machine A, and the balance of Machine Cs cost was paid in cash. Transport and installation cost of $950 were incurred in respect to Machine C. Machine C was expected to have a useful life of 8 years and a residual value of $8,000.ABC Trading uses the straight-line depreciation method and recording depreciation to the nearest dollar. The end of its reporting period is 30 June.On 30 June, 2014 fair values were determined to be $140 000 and $65 000 for Machine B and C respectively.

Required:Prepare general journal entries to record the above transactions and the depreciation journal entries required at the end of each reporting period up to June 2014 (Narrations are not required but show all workings)

Problem # 2 (Marks 4+4=8)a) ABC Ltd has incurred expenditure, the treatment of which is not prescribed by any existing accounting standard. The board of directors has requested the financial accountant to record the expenditure as an asset so as not to impact the current years profit. The accountant is concerned with the request and requires your assistance in determining an accounting policy for this expenditure.Required:Provide the accountant with two accounting policies or treatments that the company could adopt to account for this expenditure. Also what assistance does AASB provide to help the accountant choose between the policies provided in the above case.b) Black Boats builds ocean-going yachts which generally take up to 3 years to construct and are worth $50 million each. The company normally takes out a loan to finance the initial construction phase for each yacht. Interest on these loans has been treated as an expense with $750 000 written off over the last 5 years. In the current year ended 30 June 2012, the company changed its accounting policy with respect to interest and now capitalises the interest against the cost of each yacht as allowed by AASB 123 Borrowing Costs. Amounts of $40,000 and $22,000 were capitalised against two yachts on which construction started this year but no adjustments have been made for yachts under construction at the beginning of the year. The new accounting policy and its impact have been disclosed in the notes to the financial statements for the year ended 30 June 2012.Required:Critically evaluate the companys adoption of the new accounting policy with respect to the requirements of AASB 108.Source: Leo, K., Hoggett, J., Sweeting, J. & Radford, J. (2008) Company Accounting in Australia, 8th Edition, Wiley and Sons, BrisbaneAssignment Marking Criteria

The following assignment criteria are designed to give the student a guide as to what markers are looking for in the assignment:

Question# 1:

Evidence of analytical skills of identifying, calculating, presenting and organizing data in the journal17 All data are presented & calculated successfully in the Journal as per required by GAAP. 15 Most data are presented & calculated successfully in the Journal as per required by GAAP.13 Most data are presented & calculated successfully in the Journal as per required by GAAP. 10 Some data are presented & calculated successfully in the Journal as per required by GAAP. 8 Few data are presented & calculated successfully in the Journal as per required by GAAP6 Very few data are presented & calculated successfully in the Journal as per required by GAAP4 Very few data are presented & calculated unsuccessfully in the Journal as per required by GAAP. 0.0 No attempt was made to present & calculated successfully in the Journal as per required by GAAP.

Problem 2: Requirements I & II are worth 4 marks eachRequirements a & b

Apply analytical skills of initiating and conducting research; thinking; identifying and managing information and presentation.4.0 This assessment shows a good understanding of the materials researched and displays excellence in writing style and presentation3.0 This assessment shows some evidence of understanding the materials researched and adequately presented2.0 This assessment shows some evidence of understanding the materials researched and has some problems with presentation style1.0 Little evidence of understanding and major problems in presentation style0.0 No evidence of any research of understanding the concepts.

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